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Pros & Cons of Hiring a 3rd Party Vendor

Thomas Grasty is Co-Founder of Stroome (http://www.stroome.com/). In this video he discusses the pros & cons of hiring a 3rd party vendor.

  • Dependent on proprietary technology
  • Work for hire allows retaining of ownership
  • Importance of first to market
  • Determine your available resources
  • Be confident you can replicate infrastructure

Well, when most startups are starting out, they rarely have all the tools in the toolbox that they need. So oftentimes when that happens, you need to go out and have a third party vendor. Sometimes—there’s primarily three reasons why this might happen. I mean, first of all the technology is too expensive. That’s a cost issue. Perhaps it’s going to take too long to develop it. That’s a time to market issue or maybe what you need to do is outside of your expertise, that’s a core confidence. So here are a couple of things to consider when hiring a third party vendor.

First of all, are you developing proprietary technology, and by that I mean is the service or is the thing you’re providing a specific piece or is it a lot of pieces or process. If it’s a process, you probably feel more comfortable than hiring somebody. But always remember when you do that that you’re hiring them as a work for hire. That means that anything that they create, you own at the end of the day.

How important is it that you’ll be first to market? I mean, sometimes there’s a red hot opportunity out there. I mean, you’ve got to get on it right now. That means you have to control the timing, the timing of your development, the timing of your marketing. You need to control the work form. This is an instance where I would suggest maybe thinking twice about hiring a third party vendor because you really want to make sure if you control it, that it’s in house.

And third, what kind of resources do you have? This is often referred to as bandwidth. I mean, old teams have poor competencies but very rarely do you have a founding team where there’s truly a right brain and a left brain. Usually, it’s somewhere in between and stuff can fall through the cracks. Well, you don’t want that to happen.

So sometimes you might want to outsource, say, some administrative or infrastructure scenarios, and that’s a good thing to do. But make sure again back to the notion of proprietary, make sure that you can replicate those infrastructure because at same point when you’re scale, you’re going to want to be doing it yourself in house. So just sort of think it through at the end.

The main takeaway is you can think through all of this but you never want to build your business on a third party vendor. You don’t want your business to be the third party vendor. That’s a recipe for disaster. They can control your pricing, they can control your ability to adapt to the market, they can become a competitor or worst case scenario they can go out of business and take you with them.